Many people would call my favorite food choice boring and
predictable. However, I consider myself a connoisseur of the
I have had burgers all over North America from down-and-dirty
burger shacks to the finest restaurants such as Daniel Boulud's
DBGB Kitchen & Bar in Las Vegas, New York's Old Homestead
Steakhouse and other assorted classy joints.
Often these top chefs, in their zeal to outdo one another,
create more of a meatloaf concoction than a serious hamburger.
This is particularly true when you get into the Kobe beef
varieties, which I think are just terrible, despite their
astronomical price tags. My favorite burgers are of the down-home
variety, handmade with top-notch organic beef and a thick,
fresh-toasted bun. I have several favorite burger joints, and not
one is from a celebrity chef.
The Burger War
I am not alone with my zeal for the lowly hamburger. It is among
the most popular foods in North America. This popularity has led
to an all-out burger war among the chain restaurants. A true
David versus Goliath battle is going on for the palates of burger
Believe it or not, the large, entrenched burger Goliaths are
losing this war to the smaller, David-like burger chains
In fact, the big guys are getting crushed in consumer
sentiment. This is signaling that big changes are coming. Those
chains that do not change their way of doing business, thinking
their past success means they are above the fray, will likely be
left in the dust.
According to a Market Force Information survey of more than
7,600 consumers, Five Guys Burgers and Fries was picked as the
top U.S. burger chain, followed by In-N-Out Burger, Fuddrucker's,
A&W Restaurants and Smashburger. Burger heavyweights
Burger King (
are 12th and 14th, respectively, on the list. In other words, the
most famous hamburger chains are under siege by the smaller niche
Does this mean that the monster burger chains of yesteryear
will slowly die as the new upstarts take a leading role in this
ultra-competitive arena? Yes, the ones that don't adapt to
accommodate the changing tastes of customers may fade into
irrelevance. But don't write the old-school burger giants off
A leading chain is making aggressive changes to regain
consumers taste buds. These assertive changes have made this
entrenched chain an excellent investment right now. In fact, it's
already up 50% this year.
I am talking about
, which is often thought of as third fiddle to McDonald's and
In an effort to stay relevant with consumers and to keep its
smaller competitors from gaining market share, Wendy's launched
an innovative plan to upgrade stores with bistrolike features. It
has also expanded its menu with additional premium burgers,
making for more variety than McDonald's or Burger King. In fact,
Wendy's expects its pretzel bacon cheeseburger -- which I think
tastes great, by the way -- will increase same-store sales as
much as 3% by itself.
||Wendy's recently made the bold move of reducing company
ownership of restaurants from 22% to 15%. This works out to
400 stores sold to franchisees.
Financially, Wendy's recently made the bold move of reducing
company ownership of restaurants from 22% to 15%. This works out
to 400 stores sold to franchisees. By doing this, the company
creates increasingly stable revenue based on steady rent
payments, franchise fees and royalties rather than
The company just reported solid second-quarter results with
adjusted earnings of 8 cents a share, beating analysts' consensus
estimates by 2 cents. Revenue rose 1.8% from a year ago, to $650
million, but missed estimates by $10 million. The miss is
attributed to weak same-store sales growth of just 0.3% at
Investors are betting that Wendy's changes will increase
sales. On the positive side, the company increased its quarterly
dividend by 25% to 5 cents, which equates to a 2.8% annual
My bullish bet is on Wendy's as the single mega-burger chain
to thrive long term due to its willingness to undertake
substantial changes to stay relevant. To my thinking, the
fearlessness exhibited by the company provides a winning edge
against its smaller competitors.
Technically, shares have broken out of a tight channel between
$6.20 and $5.50, hitting a high of $7.60 prior to falling back to
support in the $7 range.
Risks to Consider:
Wendy's is one of the old-school burger chains, and being
bullish on Wendy's is a bet that fickle consumer tastes will be
satisfied with its changes. Always use stops and position size
properly when investing.
Action to Take -->
I like Wendy's at support right now with a 12-month target of
$10. Stops at $6.60 make solid technical sense.
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